PHILIPPINE COMPETITION ACT-RA 10667

DISCUSSION OUTLINE
(April 2018)

TITLE OF THE LAW

The title of the law is: “An act providing for a national competition policy
prohibiting ant-competitive agreements, abuse of dominant position and anti-
competitive mergers and acquisitions, establishing the Philippine Competition
Commission and appropriating funds therefor.”

EFFECTIVE DATE OF THE LAW

The effective date of the law is August 8, 2015. The subsequent implementing
rules and regulations went into effect on June 18, 2016 after its publication on
June 13, 2016.

PROHIBITED ACTS UNDER THE LAW

1. The prohibited acts under the law are; (a) Anti-Competitive Agreements
under Section 14, and (b) Abuse of Dominant Position under Section 15.

2. In addition to the prohibited acts, the PCC shall have the power to review
Mergers and Acquisitions that substantially prevent, restrict or lessen competition
in the relevant market or in the market for goods or services.

3. The ultimate aim of the law is to protect the competitive process. When
competition is eliminated, the competitive process is brought to an end as
competitors are excluded from the market (exclusionary effect) and consumers
are exploited (exploitative effect).

4. On the other hand, the law will permit an agreement or an act if it has: (a)
efficiency gains, and (b) consumer benefits. The agreement or act in this case
has the object or effect of “improving production or distribution of goods and
services within the relevant market, or promoting technical and economic
progress, while allowing consumers a fair share of the economic benefit. This is
the rule of reason or efficiency gains with consumer benefits justification.
ANTI-COMPETITIVE AGREEMENTS

1. The anti-competitive agreements are enumerated under Section 14:

a. The following agreements, between or among competitors, are per se

prohibited: (1) Restricting competition as to price, or components thereof, or
other terms of trade; (2) Fixing price at an auction or in any form of bidding
including cover bidding, bid suppression, bid rotation and market allocation and
other analogous practices of bid manipulation;

b. The following agreements, between or among competitors which have the

object or effect of substantially preventing, restricting or lessening competition
shall be prohibited: (1) Setting, limiting or controlling production, markets,
technical development, or investment; (2) Dividing or sharing the market,
whether by volume of sales or purchases, territory, type of goods or services,
buyers or sellers or any other means;

c. Agreement other than those specified in (a) and (b) of this section which
have the object or effect of substantially preventing, restricting or lessening
competition shall also be prohibited: Provided, Those which contribute to
improving the production or distribution of goods and services or to promoting
technical or economic progress, while allowing consumers a fair share of the
resulting benefits, may not necessarily be deemed a violation of this Act.

An entity that controls, is controlled by, or is under common control with another
entity or entities, have common economic interests, and are not otherwise able
to decide or act independently of each other, shall not be considered
competitors for purposes of this section.

1.1 Anti-competitive acts are those agreements undertaken with the object or
effect of substantially preventing, restricting or lessening competition. This means
that competitors are inhibited from competing, or from growing, or staying in the
market. When these occur, the agreement is said to have a foreclosure object
or effect on competition.

1.2 Foreclosure can be in the horizontal market, where the entity and its
competitors operate, or in the vertical market, the upstream or vertical market.
In this case there is vertical integration. However, there is no necessity for the
entity to have market dominance in both markets.
1.3 There is no need for actual foreclosure to occur as the law allows
intervention even before the act of the entity can have an effect on the market.

2. Section 14 has three subsections. Subsections (a) and (b) prohibit anti-
competitive agreements between or among competitors, while Subsection (c)
prohibits agreements other than those specified under (a) or (b).

2.1 The distinction is material as a violation of Subsections (a) and (b) are
criminal in nature, while that of Subsection (c) is not.

3. To resolve the issue as to whether a: (a) parent company and a subsidiary,

or (b) parent company and an affiliate company, or (c) subsidiaries or affiliates
will be considered as competitors, the law adopted the single economic entity
doctrine which is defined under the last paragraph of Section 14. In essence, the
entities that are part of the single economic entity are under the control of the
ultimate parent entity.

3.1 The control required being the ability to substantially influence or direct the
actions or decisions of an entity, whether by contract, agency or otherwise.” This
is known as “decisive influence.”

Section 25 mandates that the PCC to presume control when: “the parent owns
directly or indirectly, through subsidiaries, more than one half (1/2) of the voting
power of an entity, unless in exceptional circumstances, it can clearly be
demonstrated that such ownership does not constitute control.”

It can also be presumed even if the entity owns one half (1/2) or less of the voting
power of another entity when: (a) There is power over more than one half (1/2)
of the voting rights by virtue of an agreement with investors; (b) There is power to
direct or govern the financial and operating policies of the entity under a statute
or agreement; (c) There is power to appoint or remove the majority of the
members of the board of directors or equivalent governing body; (d) There is
power to cast the majority votes at meetings of the board of directors or
equivalent governing body; (e) There exists ownership over or the right to use all
or a significant part of the assets of the entity; (f) There exist rights or contracts
which confer decisive influence on the decision of the entity.

3.2 As a consequence, it must be realized that while affiliated companies may

be shielded from the consequences of their agreements as they are not
competitors, the parent company and related companies may be bound by the
act of a subsidiary or an affiliate if it enters into a prohibited agreement with a
competitor.

3.3 Under Rule 4, Section 2, Par. (b) of the IRR for purposes of merger control,
the reorganization of several legal entities belonging to a single economic entity
will not be covered since there can be no “acquiring and acquired pre-
acquisition ultimate parent entities.” Consequently, they are not subject to the
notification requirement.

3.4 For purposes of applying Section 15, the single economic entity shall be
considered collectively in relation to the definition of dominant position, referring
to “a position of economic strength that an entity or entities hold which makes it
capable of controlling the relevant market independently from any combination
of the following: competitors, customers, suppliers or consumers.” Since a
competitor is defined as an entity outside of a single economic entity.
Consequently, a parent company cannot be accused of impermissible conduct
towards its subsidiaries and affiliates.

4. The penal sanction is imprisonment from 2 to 7 years, and a fine of no less

than PHP 50,000,000.00 but not more than PHP 250,000,000.00.

4.1 Administrative penalties will range from PHP 50,000.00 to 2,000,000.00 per
violation.

ABUSE OF A DOMINANT POSITION

1. Abuse of Dominant Position is provided for under Section 15:

It shall prohibited for one or more entities to abuse their dominant position by
engaging in conduct that would substantially prevent, restrict or lessen
competition:

(a) Selling goods or services below cost with the object of driving competition
our of the relevant market: Provided, that in the Commission’s evaluation of this
fact, it shall consider whether the entity or entities have no such object and the
price established was in good faith to meet or compete with the lower price of
a competitor in the same market selling the same or comparable product or
service of like quality;

(b) Imposing barriers to entry or committing acts that prevent competitors from
growing within the market in an anti-competitive manner except those that
develop in the market as a result of or arising from a superior product or process,
business acumen, or legal rights or laws;

(c) Making a transaction subject to acceptance by the other parties of other

obligations which, by their nature or according to commercial usage, have no
connection with the transaction;

(d) Setting prices or other terms or conditions that discriminate unreasonably

between customers or sellers of the same goods or services, where such
customers or sellers are contemporaneously trading on similar terms and
conditions, where the effect may be to lessen competition substantially:
Provided, that the following shall be considered permissible differentials:

1. Socialized pricing for the less fortunate sector of the economy;

2. Price differential which reasonably or approximately reflect differences in
the cost of manufacture, sale or delivery resulting from differing methods,
technical conditions, or quantities in which the goods or services are sold or
delivered to the buyers or sellers;
3. Price differential or terms of sale offered in response to the competitive
price of payments, services or changes in the facilities furnished by a competitor;
and
4. Price changes in response to changing market conditions, marketability of
goods or services, or volume:

(e) Imposing restrictions on the lease or contract for sale or trade of goods or
services concerning where, to whom, or in what forms goods or services may be
sold or traded, such as fixing prices, giving preferential discounts or rebate upon
such price, or imposing conditions not to deal with competing entities, where the
object or effect of the restrictions is to prevent, restrict or lessen competition
substantially. Provided, that nothing contained in this Act shall prohibit or render
unlawful:

1. Permissible franchising, licensing, exclusive merchandising or exclusive

distributorship agreements such as those which give each party the right to
unilaterally terminate the agreement; or
2. Agreements protecting intellectual property rights, confidential
information, or trade secrets;

(f) Making supply of particular goods or services dependent upon the purchase
of other goods or services from the supplier which have no direct connection
with the main goods or services to be supplied;
(g) Directly or indirectly imposing unfairly low purchase prices for the goods or
services of, among others, marginalized agricultural producers, fisherfolk, micro-,
small-, medium-scale enterprises, and other marginalized service providers and
producers;

(h) Directly of indirectly imposing unfair purchase or selling price on their

competitors, customers, suppliers or consumers, provided that prices that
develop in the market as a result of or due to a superior product or process,
business acumen or legal rights or laws shall not be considered unfair prices; and

(i) Limiting production, markets or technical development to the prejudice of

consumers, provided that limitations that develop in the market as a result of or
due to a superior product or process, business acumen or legal rights or laws shall
not be a violation of this Act:

Provided, that nothing in this Act shall be construed or interpreted as a

prohibition on having a dominant position in a relevant market or on acquiring,
maintaining and increasing market share through legitimate means that do not
substantially prevent, restrict or lessen competition.

Provided, further, that any conduct which contributes to improving production

or distribution of goods or services within the relevant market, or promoting
technical and economic progress while allowing consumers a fair share of the
resulting benefit may not necessarily be considered an abuse of dominant
position.

Provided, finally, that the foregoing shall not constrain the Commission or the
relevant regulator from pursuing measures that would promote fair competition
or more competition as provided in this Act.

2. What Section 15 forbids is abusive conduct by a coercive monopolist. These

has the following elements: (a) The entity must have market power or market
dominance. This refers to a situation where the entity has the capacity to control
the market or stop competitors from entering the market. Under Section 27, this
can be presumed if the market share of the entity is at least 50% unless a new
market threshold is determined by the PCC. (b) The entity commits abusive
conduct. (c) The conduct must have substantial foreclosure effect on the
relevant market. (d) There is no objective justification for the conduct.
2.1 Dominant position need not be enjoyed by a single entity. The law will also
be called to apply under the concept of collective dominance. This is a situation
where several entities demonstrate a collective behavior towards the
accomplishment of a particular object that is prohibited. If they possess the
ability to control the relevant market, the entities will have collective dominance.
It must be noted though that the IRR does not specifically address the matter.

2.2 In an oligopoly, a market dominated by a few entities, there is diminished

competition and it may be normal for oligopolists to have parallel behavior. This
does not translate to ant-competitive behavior by those enjoying collective
dominance unless the behavior is the only reason for parallel behavior.

2.3 Section 15 does not forbid a monopoly. What it seeks to address is the
abuse of a monopoly as per the qualifying statements in the quoted section that
allows it to maintain and increase market share through legitimate means that
do not substantially prevent, restrict or lessen competition.

3. Potential abusive conduct as provided by Section 15 are: (a) Predatory

Pricing, which refers to the selling of goods or services below cost with the object
of driving competition out of the relevant market. (b) Imposing Barriers to
Competition, which refers to barriers to entry or committing acts that prevent
competitors from growing within the market in an anti-competitive manner. (c)
Bundling or Tying, which refers to a situation where the consumer is offered two
or more products with inducements to take both, rather than separately or where
the sale of the second product is used as a condition for the sale of the first
product. (d) Discriminatory Pricing, which refers to setting prices or other terms
and conditions that discriminate unreasonably between customers or sellers of
the same goods or services, (e) Restrictive Vertical Agreements, which refers to
distribution and supply agreements providing prima facie restrictive clauses, such
as exclusive dealing, minimum quantity obligations, resale price maintenance,
formal or de facto restriction on parallel trade, and online sales bans. Resale Price
Maintenance, refers to restrictions on the contract of sale concerning where, to
whom or in what forms goods and services may be sold or traded such as fixing
prices or the giving of preferential rebates or discounts. (f) Imposing Unfair Price,
which refers to a price that is higher or lower than what could objectively be
justified insofar as its contract with a marginalized supplier, who is one engaged
in a subsistence activity (i.e farmer) and whose annual net income does not
exceed the NEDA poverty line for his region. (g) Limiting production, markets or
technical development which results in prejudice to consumers, and is not the
result of “ a superior product or process, business acumen, or legal rights or laws.”
REVIEW OF MERGERS AND ACQUISITIONS

1. Section 16 gives the PCC the power to review mergers and acquisitions
based on factors which they deem to be relevant.

2. Section 17 provides for compulsory notification if the transaction has met

the set threshold of PHP 1,000,000,000.00 under the size of the person test and the
size of the transaction test.

2.1 The size of the person test refers to the acquiring or target entity, at least
one of which must have gross annual revenues in, into or from or assets in the
Philippines worth PHP 1,000,000,000.00. This has been increased to PHP
5,000,000,000.00 under PCC Policy Statement 18-01 effective March 20, 2018.

2.2 The size of the transaction test refers to object of transaction and must be
worth PHP 2,000,000,000.00 as likewise revised under PVV Policy Statement 18-01.

2.3 In case of acquisitions, to include de facto mergers or consolidations,

compliance with the size of the transaction test will require an inquiry as to the
place of the subject assets, as: (a) where all the subject assets are in the
Philippines, the gross annual revenues or value of assets must meet the threshold,
(b) where all the subject assets are outside of the Philippines, the gross annual
revenues of such assets generated in or into the Philippines and the value of
assets in the Philippines of the acquiring entity must meet the threshold, and (c)
where some of the subject assets are inside and some are outside the Philippines,
the gross annual revenues generated in or into the Philippines by assets acquired
in the Philippines and assets acquired outside of the Philippines must collectively
meet the threshold and the value of assets in the Philippines of the acquiring
entity must similarly meet the threshold.

2.4 In statutory mergers or consolidations, the size of the transaction test

requires that the enterprise value test and the control test be hurdled. In the
enterprise value test, the gross annual revenues from sales in, into or from the
Philippines or the value of the assets in the Philippines must meet the threshold.
In the control test, the acquiring entity must directly or indirectly gain control or
further control of the subject enterprise. Both are subject to separate
notifications.

2.5 In case of a joint venture, the contributing entities are deemed acquiring
entities and the joint venture the acquired entity. Under Rule 4, Section 3, Par.
(d), the acquiring entity in the transaction will be subject to notification if either:
(a) the aggregate value of assets combined in the Philippines or contributed into
the joint venture exceeds the threshold, or (b) the gross revenues generated in
the Philippines by assets combined in the Philippines of contributed into the
proposed joint venture exceeds the threshold.

3. Section 17 requires compulsory notification at least 30 days prior to the

consummation of the transaction. This will have the effect of prohibiting the
parties from consummating the transaction until 30 days after the PCC was
provided notification. This gives the PCC the opportunity to issue a decision, or if
necessary, to request additional information. In the latter case, the transaction
cannot be consummated for an additional 60 days, beginning on the day the
request for additional information is received. Provided, that in no case shall the
total period of review exceed 90 days from initial notification.

3.1 For creeping transactions, referring to merger or acquisitions consisting of

successive transactions or acquisition of parts of one or more entities wich shall
take place with a 1 year period, it shall be treated as one transaction.
Notification must be on the basis of the preliminary binding agreement, or if
none, when the parties execute the agreement relating to the last transaction
which, when taken together with the preceding transactions, satisfies the
threshold.

4. If there is a failure to give notification, the law will impose an administrative

fine ranging from 1% to 5% of the transaction value. This may also result in gun-
jumping or premature consummation of the transaction without the requisite
clearance from the PCC.

5. The PCC can permit an otherwise prohibited merger or acquisition under a

rule of reason and/or white knight justification. The former holds that the M & A
has brought about or is likely to bring about gains in efficiencies that are greater
than the effects of any limitation on competition, while the latter is a situation
where a party is faced with actual or imminent financial failure and the
agreement is represents the least competitive arrangement among known
alternative uses for the failing entity’s assets.

6. A favorable ruling acquires a no-look back protection as the PCC ruling

cannot be challenged or reversed by the PCC except when it is obtained
through fraud or false material information.